Suppliers squeezed: Woolies accused

Mark Hawthorne, Madeleine Heffernan

Woolworths is looking to squeeze price cuts from scores of suppliers to help fund its price war with Coles - and buyers from the supermarket giant have threatened to remove products from the shelves if the demands are not met.

In what one food manufacturer described as ''the most brutal negotiations that I have experienced in my three decades in the industry'', a number of suppliers have been given two weeks to find cost savings of between 5 and 10 per cent, or face being removed from the aisles.

The independent senator Nick Xenophon, an outspoken critic of the combined 80 per cent market share of Woolworths and rival Coles, said yesterday he would call for Woolworths to be pulled before a Senate inquiry to explain its actions.

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Just five months after the chairman of the Australian Competition and Consumer Commission, Rod Sims, called on suppliers to dob in supermarkets that abused their power, suppliers to Woolworths have been told to slash their ''trading terms'' - industry jargon for the net cost of supplying their product.

''We were told straight out to find a reduction in terms or we wouldn't be stocked any more,'' said a managing director of one Woolworths supplier.

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The Australian Food and Grocery Council issued a briefing note to its members this week advising them of the cost cuts. The note said Woolworths had justified the cuts by claiming suppliers were price-gouging.

Woolworths was believed to have used a consultant's report to justify the cost cuts, the letter said, but had not released details of that report to suppliers. ''In most cases … companies have been asked to respond within two weeks to the request,'' the letter said.

A Woolworths spokeswoman, Claire Kimball, said there was no two-week cutoff in its negotiations and ''nothing unusual happening at the moment''.

''When we put our position to vendors we often ask them to come back to us in two weeks with their response,'' Ms Kimball said. ''However, it is a negotiation and this often necessitates ongoing discussions.''

She added: ''Negotiating terms of trade is something we do day in and day out. Any conclusions reached in negotiations have to be mutually agreed.''

The AFGC letter also said it had shared its concerns with Andrew Hall, director of corporate and public affairs at Woolworths, and Tjeers Jegen, managing director of Woolworths' supermarket and petrol division.

Senior management at Woolworths and Coles have denied claims they use their market dominance to pressure suppliers. The AFGC briefing, however, notes ''the disconnect between commentary from senior executives within Woolworths and the behaviours of trading teams and buyers''.

Yesterday the boss of a big supplier told the Herald: ''Due to Woolworths' market-share loss [to Coles] they have been using their dominant size in the industry as a blunt negotiating instrument to demand list price reductions.

''They have no interest in understanding the impact that their unreasonable demands would have on our business, but are using their 40 per cent-plus share of the market as a brutal implied threat. This is only about boosting Woolworths' margins … there has never been any discussion about passing the cost reductions on to consumers.''

The Herald can reveal more than 50 suppliers have contacted the ACCC with complaints about the big supermarkets. Yesterday the watchdog said its confidential talks were progressing well. It is expected to report its finding by the year's end.

But Senator Xenophon said the 50 figure was just the ''tip of the iceberg'', noting that ABC TV's Lateline had contacted 100 suppliers in vain to speak out publicly.